Solicitor-Client Privilege and Execution of Anton Piller Orders

By: Javad Heydary & Tony C.H. Cheung

The prevalence of electronic communications and documents in modern legal practices is a fact of life. However, insufficient awareness of this new reality may lead to significant consequences for those in the legal profession. A lack of awareness and caution with electronic documents will be particularly detrimental in cases where an extraordinary remedy such as an Anton Piller order is involved.

The Supreme Court of Canada recently delivered its ruling in Celanese Canada Inc. v. Murray Demolition Corp. It allowed the appeal from Canadian Bearings Ltd. (“Canadian Bearings”) and removed Cassels Brock as solicitors of record for Celanese Canada Inc. (“Celanese”) for improperly seizing and subsequently reviewing privileged electronic documents from Canadian Bearings pursuant to an Anton Piller order. This case, as Justice Binnie of the Supreme Court of Canada noted, deals with a “clash between two competing values” – solicitor client privilege and the right to select counsel of one’s choice.

Facts

The underlying litigation in this case involved alleged industrial espionage. Celanese retained Murray Demolition Corp. to demolish a vinyl acetate production plant in Edmonton. Celanese discovered in 2003 that other parties, among them Canadian Bearings, had been given access to the demolition site by Murray Demolition Corp., and these parties engaged in what appeared to be an attempt to copy proprietary processes and equipment under the guise of demolition. They were ordered off the property by Celanese.

Celanese initiated proceedings against Canadian Bearings for allegedly stealing technology and making unauthorised use of it in the construction of a vinyl acetate production facility in Iran. On June 19, 2003, the motions judge granted Celanese’s ex parte application for an Anton Piller order against Canadian Bearings and others. The order did not deal with how privileged documents were to be handled.

During the execution of the Anton Piller order against Canadian Bearings by Cassels Brock on June 20 and 21, 2003, privileged electronic documents were downloaded onto a portable hard drive and burned onto CD-ROMS. These were then given to an independent accounting firm, BDO, in a sealed envelope. Contrary to the express provision in the Anton Piller order, no complete list of the seized records was made prior to their removal from the searched premises.

On June 23, 2003, lawyers from Cassels Brock and another law firm, Karowitz, directed BDO to open the sealed envelope and make copies of the contents of the hard drive and CD-ROMs available to them. The solicitors for Canadian Bearings, Borden Ladner Gervais LLP (“BLG”), were not informed that this was taking place. Lawyers from Cassels Brock and Karowitz then partially reviewed the privileged electronic documents obtained from the hard drive and CD-ROMs. When BLG discovered that the sealed envelope had been opened, some heated correspondence ensued. BLG sent a letter to Cassels Brock and Kasowitz on July 11 or 12 to request the immediate return of some 82 privileged documents and identification of who reviewed them. Rather than returning the privileged electronic material as requested, Cassels Brock and Kasowitz advised BLG that the documents had been deleted from their systems.

Judicial History

Canadian Bearings brought a motion to disqualify Cassels Brock and Kasowitz from continuing to act for Celanese, which was dismissed by the motions judge. Justice Nordheimer concluded that the removal of Cassels Brock and Kasowitz was not warranted since the mishandling of the sealed envelope was not “done deliberately to get at privileged documents” and that there was an “[absence of] evidence of a pressing and substantial prejudice”.

Canadian Bearings then appealed to the Divisional Court, which allowed the appeal. The Divisional court concluded that:

“where it is clear that documents are relevant and privileged and they have been reviewed by counsel and others, opposite prejudice should be assumed”.

Citing MacDonald Estate, an earlier Supreme Court of Canada decision, the Divisional Court held that it would be inappropriate to require the moving party to demonstrate prejudice, since this would defeat the entire purpose of privilege.

Celanese, Cassels Brock and Kasowitz appealed to the Ontario Court of Appeal, which allowed the appeal on the grounds that neither of the lower courts had applied the correct test for removal. The Court of Appeal described the key difference between the decisions of the motions judge and the Divisional Court as a disagreement about which party bears the onus of establishing relevance and prejudice. The correct test is whether:

“upon consideration of the whole evidence, the moving party satisfies the court that there is a real risk that opposing counsel will use information obtained from privileged documents to the prejudice of the moving party and the prejudice cannot realistically be overcome by a remedy short of disqualification”.

Justice Moldaver of the Court of Appeal then held that the onus is on the moving party to establish:

• that opposing counsel received confidential information protected by privilege;
• that the information is relevant to the matter at hand; and
• that it is potentially prejudicial.

Once these requirements have been established, the onus shifts to the opposing side to rebut.

Ruling of SCC

The Supreme Court settled the two major issues that went back and forth in the lower courts:

• the correct test for the removal of counsel; and
• which party should bear the onus of showing, or rebutting, the presumption of prejudice from a violation of privilege that necessitates the removal of counsel.

On both issues, the Supreme Court laid down clear guidelines. First, the initial onus is on the moving party to demonstrate that the defending party had obtained confidential information. Once this is established, the onus then shifts to the defending party to rebut the presumption of prejudice. This approach affirms the earlier MacDonald Estate decision by the Supreme Court of not imposing extra burdens on the moving party to demonstrate the nature and the relevance of the confidential information in question. That burden is best borne by the parties that received the confidential information, as they would be in a better position to do so.

Justice Binnie held that Canadian Bearings had discharged its onus as per the MacDonald Estate test by establishing that the solicitors for Celanese had in fact obtained privileged information. The onus then shifted to Celanese to rebut a presumption of prejudice. Justice Binnie, writing for a unanimous court, held that Cassels Brock and Kasowitz had failed to rebut that presumption:

Experience has shown that despite their draconian nature, there is a proper role for Anton Piller orders to ensure that unscrupulous defendants are not able to circumvent the court’s processes by, on being forewarned, making relevant evidence disappear. Their usefulness is especially important in the modern era of heavy dependence on computer technology, where documents are easily deleted, moved or destroyed. The utility of this equitable tool in the correct circumstances should not be diminished. However, such orders should only be granted in the clear recognition of their exceptional and highly intrusive character and, where granted, the terms should be carefully spelled out and limited to what the circumstances show to be necessary. Those responsible for their implementation should conform to a very high standard of professional diligence. Otherwise, the moving party, not its target, may have to shoulder the consequences of a botched search…

In summary, I agree with the Divisional Court that lawyers who undertake a search under the authority of an Anton Piller order and thereby take possession of relevant confidential information attributable to a solicitor-client relationship, bear the onus of showing there is no real risk such confidences will be used to the prejudice of the defendant. Difficulties of proof compounded by errors in the conduct of the search and its aftermath should fall on the heads of those responsible for the search, not of the party being searched. The onus was not met by the respondents in this case.

Due to the complex nature of modern commercial litigation, there is no such thing as an automatic disqualification for violation of privilege. Instead, courts should look to a number of factors including, but not limited to:

• how the documents came into the possession of the plaintiff or its counsel;
• what the plaintiff and its counsel did upon recognition that the documents were potentially privileged;
• the extent of review made of the privilege material;
• the contents of the solicitor-client communications and the degree to which they are prejudicial;
• the stage of the litigation; and
• the potential effectiveness of a firewall or other precautionary steps to avoid mischief.

In view of all the circumstances, Justice Binnie found that Cassels Brock and Kasowitz had not passed the test for removal as per MacDonald Estate, namely “that the public represented by the reasonably informed person would be satisfied that no use of confidential information would occur”.

Conclusion

The major issues that arose in Celanese Canada Inc. v. Murray Demolition Corp. went beyond the scope of the initial Anton Piller order. The case devolved into a clash of values, between solicitor client privilege and the right to select counsel of one’s choice. While setting down the standards and the procedures for the consideration of these values, the decision is also a warning to counsel to be careful when drafting an Anton Piller order. As Justice Binnie stated:

A precisely drawn and clearly thought out [Anton Piller] order therefore will not only protect the defendant’s right to solicitor-client privilege, but also protect the plaintiff’s right to continue to be represented by counsel of choice by helping to ensure that such counsel do not stumble into possession of privileged information.

Electronic communications and digital documentation are prevalent in every aspect of a corporation’s activities – communications with legal counsel is no exception. The possibility that seized electronic records could contain privileged information should be treated as a given and lawyers who overlook this do so at their own peril, especially in circumstances where an extraordinary remedy such as an Anton Piller order is involved